A Random Stroll Up to Wall Street

At the recommendation of my friend Bobby, I have started to read “A Random Walk Down Wall Street”.  This book is known as one of the premier investment books and a modern day classic.  I am slowly working my way through it, and I am sure you will hear me reference this book a lot as I read it.  However, today I wanted to share a simple tidbit from the first chapter.

The author, Burton Malkiel, references two different theories with regard to investing based on what the prospects of the future hold.  He calls these two theories, “The Firm Foundation Theory” and the “Castle-in-the-air Theory”.

The Firm Foundation Theory assumes that there is an intrinsic value for all stocks.  Something is either undervalued, overvalued, or at the right price.  Discovering what is undervalued or overvalued, and playing the market in the right direction until the stock reaches equilibrium is the way this theory works.  This also epitomizes the ‘buy and hold’ strategy of investing.  For example, lets assume Microsoft’s stock has been in the tank for some reason the past handful of months.  You know they will bounce back eventually; it’s only a matter of time.  So you buy the stock when it’s low, and hold onto it.  Eventually it will come back to its equilibrium value, and you made yourself a nice profit.  Warren Buffett is the perfect example of someone who has made billions using strategies similar to this.

Tickle Me Elmo Was The Hottest Toy of 1996

Tickle Me Elmo Was The Hottest Toy of 1996

The Castle-in-the-air Theory was put forth by legendary economist John Maynard Keynes.  In layman’s terms, Keynes felt that investors were better off and would rather catch trends on the upswing, and then sell their stake in the trend at its peak.  For example, if you bought a crate of Tickle Me Elmo’s back in the summer of 96 for $30 a piece, you could have bought yourself a couple of cars if you sold your stock in early December of 96.  However, if you bought that same crate of Elmo’s in late December, and held onto them until January, you stood to lose a lot of money.  The Castle-in-the-air theory takes advantage of trends.  If you get in on a hot stock before anyone else, and exit just as it’s starting to plateau or fall, you have done well.  This theory focuses on consumer psychology more than on actual valuation of stocks.

There will be more to come from this book, but these were interesting enough theories to share.  If you have read the book, or if you have other investing books to recommend, please leave a comment below.

9,115 Responses to A Random Stroll Up to Wall Street
  1. Rekomendasi Saham ELSA
    April 21, 2019 | 8:28 am

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A Random Stroll Up to Wall Street

At the recommendation of my friend Bobby, I have started to read “A Random Walk Down Wall Street”.  This book is known as one of the premier investment books and a modern day classic.  I am slowly working my way through it, and I am sure you will hear me reference this book a lot as I read it.  However, today I wanted to share a simple tidbit from the first chapter.

The author, Burton Malkiel, references two different theories with regard to investing based on what the prospects of the future hold.  He calls these two theories, “The Firm Foundation Theory” and the “Castle-in-the-air Theory”.

The Firm Foundation Theory assumes that there is an intrinsic value for all stocks.  Something is either undervalued, overvalued, or at the right price.  Discovering what is undervalued or overvalued, and playing the market in the right direction until the stock reaches equilibrium is the way this theory works.  This also epitomizes the ‘buy and hold’ strategy of investing.  For example, lets assume Microsoft’s stock has been in the tank for some reason the past handful of months.  You know they will bounce back eventually; it’s only a matter of time.  So you buy the stock when it’s low, and hold onto it.  Eventually it will come back to its equilibrium value, and you made yourself a nice profit.  Warren Buffett is the perfect example of someone who has made billions using strategies similar to this.

Tickle Me Elmo Was The Hottest Toy of 1996

Tickle Me Elmo Was The Hottest Toy of 1996

The Castle-in-the-air Theory was put forth by legendary economist John Maynard Keynes.  In layman’s terms, Keynes felt that investors were better off and would rather catch trends on the upswing, and then sell their stake in the trend at its peak.  For example, if you bought a crate of Tickle Me Elmo’s back in the summer of 96 for $30 a piece, you could have bought yourself a couple of cars if you sold your stock in early December of 96.  However, if you bought that same crate of Elmo’s in late December, and held onto them until January, you stood to lose a lot of money.  The Castle-in-the-air theory takes advantage of trends.  If you get in on a hot stock before anyone else, and exit just as it’s starting to plateau or fall, you have done well.  This theory focuses on consumer psychology more than on actual valuation of stocks.

There will be more to come from this book, but these were interesting enough theories to share.  If you have read the book, or if you have other investing books to recommend, please leave a comment below.

9,115 Responses to A Random Stroll Up to Wall Street
  1. Rekomendasi Saham ELSA
    April 21, 2019 | 8:28 am

    Portal Berita Saham & Investasi di Indonesia. Kami menghadirkan berita terkini dan terupdate langsung dari sumber yang terpercaya. Selain itu SAHAM.NEWS juga menghadirkan Analisa & Rekomendasi saham harian dari berbagai sumber analis profesional maupun analis independen di Indonesia

  2. nontonmovie
    April 21, 2019 | 8:52 am

    Today, I went to the beachfront with my
    children. I found a sea shell and gave it to my 4 year old daughter and said “You can hear the ocean if you put this to your ear.” She placed the shell to her ear and screamed.
    There was a hermit crab inside and it pinched her ear.
    She never wants to go back! LoL I know this is entirely off topic
    but I had to tell someone!

  3. Kurta
    April 21, 2019 | 9:34 am

    Thank you for another informative website. Where else may just I get that kind of info
    written in such an ideal means? I have a project that I’m just now operating on, and I
    have been at the glance out for such info.

  4. Free Japan Adult Video
    April 21, 2019 | 9:50 am

    Greetings from Carolina! I’m bored to death at work
    so I decided to check out your blog on my iphone during lunch break.
    I love the information you present here and can’t wait to take
    a look when I get home. I’m amazed at how fast your blog loaded on my phone ..
    I’m not even using WIFI, just 3G .. Anyhow, excellent blog!

  5. The Strange Love of Martha Ivers dvd
    April 21, 2019 | 10:31 am

    My brother recommended I might like this blog. He was entirely right.
    This post truly made my day. You can not imagine just how
    much time I had spent for this information! Thanks!

  6. voyeur house
    April 21, 2019 | 10:31 am

    Thank you for some other magnificent post. Where else could anyone
    get that kind of information in such a perfect manner of writing?
    I have a presentation next week, and I’m at the search for
    such information.

  7. news digest
    April 21, 2019 | 10:50 am

    cartrawler Car Hire Dublin Airport
    cartrawler Car Hire Dublin Airport. When you are planning a tour, you will always need to find the
    best options to explore a destination. Carhire121 will always be your companion when you are looking for
    most affordable car hire options. There are various international and local
    car hire firms that you can choose from. We compare prices from different car hire firms to
    find the best deal for your budget needs.

    Dublin

    Dublin is a wonderful place to visit. It has interesting history, world famous nightlife, and fantastic shopping.
    If you are willing to visit this wonderful Irish capital then don’t
    forget to compare prices and hire a cheap car at Dublin Airport.

    Here is my web site :: news digest

  8. http://tinyurl.com/y6aemscl
    April 21, 2019 | 1:57 pm

    Hey there would you mind sharing which blog platform you’re working
    with? I’m planning to start my own blog soon but I’m having a
    tough time selecting between BlogEngine/Wordpress/B2evolution and Drupal.
    The reason I ask is because your layout seems different
    then most blogs and I’m looking for something completely unique.
    P.S Sorry for getting off-topic but I had to
    ask!

  9. Britney
    April 21, 2019 | 3:08 pm

    It’s very easy to find out any topic on web as compared to books, as I found this paragraph at this website.

  10. Ibogaine treatment center
    April 21, 2019 | 3:46 pm

    Yesterday, while I was at work, my cousin stole my apple ipad and tested to see if it
    can survive a twenty five foot drop, just so she can be a youtube sensation. My apple ipad is now destroyed and she has 83 views.
    I know this is entirely off topic but I had to share it with someone!

  11. vergi daireleri
    April 21, 2019 | 4:57 pm

    Hey! I know this is kind of off-topic however I had to ask.
    Does running a well-established website like yours require
    a massive amount work? I am brand new to operating a blog but I do write in my diary daily.

    I’d like to start a blog so I can easily share my own experience and feelings
    online. Please let me know if you have any kind of suggestions or tips for new aspiring
    blog owners. Thankyou!

  12. Training Belajar Saham Gratis
    April 21, 2019 | 5:24 pm

    There’s certainly a lot to know about this subject.
    I really like all the points you’ve made.

Trackbacks/Pingbacks
  1. دوربین مدار بسته
  2. کارشناسی لکسوس
  3. 먹튀검증
Leave a Reply


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